TSP Allocation by Age: Lifecycle Fund vs. Custom Portfolio Strategies
Category: Financial Mastery
Last Updated: 2025-01-25
Effective: 2025
Sources: TSP.gov, TSP Fund Performance, BRS Calculator
BLUF (Bottom Line Up Front)
Your TSP allocation should change as you age, shifting from aggressive growth (80-100% stocks) in your 20s to conservative stability (50-70% bonds) near retirement. Most service members are better off with a custom portfolio (C, S, I funds) than the Lifecycle Funds, which are too conservative too early and cost you tens of thousands in lost growth.
For most service members under 40: 60% C Fund, 20% S Fund, 20% I Fund. Adjust more conservative as you approach 50+.
Understanding TSP Funds
The 5 Core Funds
-
G Fund (Government Securities)
- What it is: Ultra-safe government bonds
- Return: ~2-3% annual (2024: 4.1% due to high interest rates)
- Risk: Zero (cannot lose money)
- Use case: Preservation, not growth
-
F Fund (Fixed Income)
- What it is: Corporate and government bonds
- Return: ~3-5% annual
- Risk: Low (can lose value short-term)
- Use case: Stability in volatile markets
-
C Fund (Common Stock - S&P 500)
- What it is: Tracks the S&P 500 (Apple, Microsoft, Amazon, etc.)
- Return: ~10% annual average (long-term)
- Risk: Medium-high (can swing ±20% in a year)
- Use case: Core growth engine
-
S Fund (Small Cap Stock)
- What it is: U.S. small/mid-cap companies
- Return: ~11-12% annual average (long-term)
- Risk: High (more volatile than C Fund)
- Use case: Aggressive growth
-
I Fund (International Stock)
- What it is: Developed international markets (Europe, Asia, Australia)
- Return: ~8-9% annual average (long-term)
- Risk: Medium-high (currency + market risk)
- Use case: Diversification outside U.S.
Lifecycle Funds (L Funds)
- What they are: Pre-mixed portfolios that automatically rebalance based on target retirement date
- Options: L 2030, L 2035, L 2040, L 2045, L 2050, L 2055, L 2060, L 2065, L Income
- Problem: They shift to bonds WAY too early, costing you growth
Example: L 2050 Fund (for someone retiring in ~2050, currently in their 30s)
- Current allocation (2025): 75% stocks, 25% bonds
- Problem: A 30-year-old should be 90-100% stocks, not 75%
- Cost: Lost growth over 20-30 years = $50,000-$100,000+
TSP Allocation by Age & Career Stage
Ages 18-30: Maximum Aggression (90-100% Stocks)
Why: You have 30-40+ years until retirement. Short-term volatility doesn't matter. Time heals all stock market crashes.
Recommended Allocation:
- 60% C Fund (S&P 500 - core growth)
- 20% S Fund (small caps - aggressive growth)
- 20% I Fund (international diversification)
- 0% G Fund, 0% F Fund
Rationale:
- Stocks average 10% annual returns long-term
- Bonds average 3-4% returns
- Over 30 years: 10% growth = $1 becomes $17.45 | 4% growth = $1 becomes $3.24
Real Example: E-3 Contributing 5% ($175/month)
- Age 20 → 60 at 10% annual return: $1.1 million
- Age 20 → 60 at 4% annual return (too much G/F Fund): $358,000
- Cost of being too conservative: $742,000 lost
Ages 30-40: Still Aggressive (80-90% Stocks)
Why: You still have 20-30 years until retirement. Volatility is opportunity, not risk.
Recommended Allocation:
- 50% C Fund
- 20% S Fund
- 20% I Fund
- 10% F Fund (starting to add some stability)
- 0% G Fund
Adjustment Strategy:
- If market crashes 20%+, temporarily increase stock allocation to 90-95% (buy the dip)
- If within 5 years of deployment, shift 10-20% to G Fund for preservation
Real Example: E-6 with 12 Years, Contributing 10% ($400/month)
- Current TSP balance: $80,000
- Age 35 → 60 at 9% annual return: $1.2 million
- Age 35 → 60 at 5% annual return (too conservative): $620,000
- Cost of early conservatism: $580,000 lost
Ages 40-50: Gradual Shift (70-80% Stocks)
Why: You have 10-20 years left. Still need growth, but start adding stability.
Recommended Allocation:
- 45% C Fund
- 15% S Fund
- 15% I Fund
- 15% F Fund (bonds for stability)
- 10% G Fund (preservation)
Adjustment Strategy:
- Each year after 45, shift 2-3% from stocks to bonds
- By 50: Target 65-70% stocks, 30-35% bonds
Real Example: O-4 with 18 Years, Contributing 15% ($900/month)
- Current TSP balance: $350,000
- Age 45 → 60 at 8% annual return: $1.5 million
- Age 45 → 60 at 4% annual return (too conservative): $950,000
- Cost of over-conservatism: $550,000 lost
Ages 50-60: Conservative Growth (50-65% Stocks)
Why: You're approaching retirement. Balance growth with preservation.
Recommended Allocation (Age 50-55):
- 35% C Fund
- 10% S Fund
- 10% I Fund
- 25% F Fund
- 20% G Fund
Recommended Allocation (Age 56-60):
- 30% C Fund
- 5% S Fund
- 10% I Fund
- 30% F Fund
- 25% G Fund
Rationale:
- Still need some growth to combat inflation
- Adding bonds/G Fund to reduce volatility as you near withdrawal
- Target: Smooth ride into retirement, not maximum growth
Ages 60+: Preservation & Income (30-40% Stocks)
Why: You're withdrawing or about to. Preserve what you've built.
Recommended Allocation:
- 20% C Fund
- 10% I Fund
- 40% F Fund
- 30% G Fund
Withdrawal Strategy:
- TSP allows monthly installments
- Target 4% annual withdrawal rate (e.g., $1M balance = $40K/year)
- Keep 2 years of withdrawals in G Fund (safe buffer)
Lifecycle Fund vs. Custom Portfolio: The Numbers
Scenario: 25-Year-Old E-4 Contributing $200/month for 35 Years
Option A: L 2060 Fund (Lifecycle)
- Starts ~85% stocks, gradually shifts to ~20% stocks by age 60
- Average return over 35 years: ~7.5%
- Final Balance at age 60: $452,000
Option B: Custom Portfolio (Recommended)
- 60% C, 20% S, 20% I until age 40
- Gradual shift to 50-30-20 by age 50
- Further shift to 35-25-15-25 by age 60
- Average return over 35 years: ~9.2%
- Final Balance at age 60: $658,000
Difference: $206,000 more with custom portfolio
Why the Difference?
- Lifecycle Funds shift to bonds too early
- Bonds earn 4-5% vs. stocks' 10% long-term
- Over 35 years, that 1.7% difference compounds to $200K+
Special Situations
Deploying Soon?
Strategy: Shift 20-30% to G Fund 6 months before deployment
Why:
- You can't easily rebalance while deployed
- If market crashes during deployment, you can't adjust
- G Fund = stability during uncertainty
After deployment: Shift back to your age-appropriate allocation
Separating/Retiring Soon?
Strategy: Shift to 40-50% G/F Fund 2 years before separation
Why:
- You'll need cash soon (lump sum pension, TSP withdrawals)
- Can't risk a 20% market crash right before you need the money
- Preserve what you've built
Market Crash Happening?
DO NOT PANIC SELL.
Strategy: INCREASE stock allocation (buy the dip)
Historical Proof:
- 2008 Crash: S&P 500 dropped 50%, then recovered +300% over next 10 years
- 2020 COVID: S&P dropped 35% in March, recovered by August, +100% by 2023
- Those who sold locked in losses. Those who bought made fortunes.
Action Plan:
- Check your allocation
- If you're under 50, consider increasing stocks by 10-20%
- If you have extra cash, max TSP contributions ($23,500/year in 2025)
- Set it and forget it - check back in 6 months
BRS vs. High-3: How It Impacts TSP Strategy
BRS (Blended Retirement System)
TSP Matching: Government matches up to 5% of base pay
Strategy: ALWAYS contribute at least 5% to get full match
Math:
- E-5 with 6 years: Base pay $3,500/month
- 5% contribution: $175/month (you) + $175/month (match) = $350/month total
- That's $2,100/year in FREE MONEY
If you're not getting the full 5% match, you're literally throwing away free money.
High-3 (Legacy System)
No TSP Matching: You're on your own
Strategy: Still max TSP (or at least 10-15%)
Why:
- High-3 pension is better, but TSP is still essential
- Inflation erodes pension value over time
- TSP grows tax-deferred
- You'll need more than just pension in retirement
How to Rebalance Your TSP
Step 1: Log Into TSP.gov
Go to www.tsp.gov, log in with your account
Step 2: Check Current Allocation
Click "Account Balance" → See your current fund breakdown
Step 3: Make Interfund Transfer (IFT)
"Interfund Transfer" = Move money between funds NOW
- Click "Contribution Allocations"
- Click "Interfund Transfers"
- Enter new percentages (must total 100%)
- You get 2 IFTs per month (use them strategically)
Example:
- Current: 100% L 2050 Fund
- New: 60% C Fund, 20% S Fund, 20% I Fund
Step 4: Change Future Contributions
"Contribution Allocation" = Where FUTURE paychecks go
- Click "Contribution Allocations"
- Enter percentages for each fund
- This affects FUTURE contributions, not current balance
TIP: Do BOTH interfund transfer (move existing money) AND contribution allocation (future contributions) to fully realign
Step 5: Set Calendar Reminder
Rebalance annually (every January, for example)
Why:
- If stocks outperform, you might be 75% stocks when you wanted 60%
- Rebalancing = "sell high, buy low" automatically
- Takes 5 minutes once a year
Common Mistakes That Cost Money
Mistake #1: Setting It and Forgetting It (Wrong Allocation)
Problem: Default TSP allocation is 100% G Fund (0% growth)
Cost: E-5 contributing $200/month for 20 years
- G Fund at 3%: $66,000
- Proper allocation at 9%: $134,000
- Cost: $68,000 lost
Fix: Check your allocation RIGHT NOW. If it's 100% G Fund or L Income Fund, change it immediately.
Mistake #2: Chasing Last Year's Winner
Problem: "S Fund was up 30% last year, I'll put 100% there!"
Cost: S Fund crashes 40% next year (as volatile funds do)
Fix: Diversify. 60-20-20 spreads risk while maintaining growth.
Mistake #3: Panic Selling During Crashes
Problem: Market drops 20%, you sell everything to G Fund, locking in losses
Cost: Miss the recovery (stocks always recover long-term)
Fix: Ignore short-term volatility. Better yet, BUY MORE stocks during crashes.
Mistake #4: Ignoring TSP Because "I Have a Pension"
Problem: "High-3 pension is enough, I don't need TSP"
Reality: Pension inflation adjustments lag real inflation. TSP grows.
Fix: Max TSP regardless of retirement system. You'll need both.
Mistake #5: Not Getting the BRS 5% Match
Problem: Contributing 3% when you should contribute 5%
Cost: $2,100/year in free money (for E-5) = $52,500 over 25-year career
Fix: Contribute AT LEAST 5% if you're under BRS. No exceptions.
Real-World Examples
Example 1: E-4 Age 22, Just Started TSP
Profile:
- Rank: E-4 with 2 years
- Base Pay: $2,800/month
- Current TSP: $3,000 (been contributing 5%)
- BRS: Yes (getting 5% match)
Recommended Allocation:
- 65% C Fund, 20% S Fund, 15% I Fund
Strategy:
- Max BRS match (contribute 5% = $140/month + $140 match = $280/month)
- Increase contribution by 1% every promotion
- By E-6: Contributing 10-15%
- By age 60: $1.2 million+
Example 2: O-3 Age 35, Moderate TSP Balance
Profile:
- Rank: O-3 with 10 years
- Base Pay: $7,500/month
- Current TSP: $120,000 (contributed sporadically)
- BRS: No (High-3 legacy system)
Current Allocation (Problem):
- 100% L 2050 Fund (too conservative)
Recommended Allocation:
- 55% C Fund, 20% S Fund, 15% I Fund, 10% F Fund
Strategy:
- Interfund transfer: Move $120K to new allocation
- Contribution allocation: 15% going forward ($1,125/month)
- By age 60: $2.1 million
- If stayed in L 2050: $1.6 million
- Gain from switching: $500,000
Example 3: E-7 Age 48, Close to Retirement
Profile:
- Rank: E-7 with 22 years
- Base Pay: $5,200/month
- Current TSP: $450,000 (maxed contributions for years)
- Retiring at 55 (33 years TIS)
Current Allocation (Problem):
- 70% C/S/I, 30% G/F (still too aggressive for retirement timeline)
Recommended Allocation:
- 40% C Fund, 10% I Fund, 30% F Fund, 20% G Fund
Strategy:
- Shift 20% from stocks to bonds (reduce volatility risk)
- Each year until retirement: Shift another 5% to bonds/G Fund
- By age 55: 30% stocks, 70% bonds/G (preservation mode)
- Projected balance at retirement: $750,000
Next Steps
Immediate Actions:
- Check Your Current Allocation - Log into TSP.gov RIGHT NOW
- Calculate Your Target Allocation - Use your age from the guide above
- Make Interfund Transfer - Move existing balance to new allocation
- Update Contribution Allocation - Change where future paychecks go
- Verify BRS Match - If under BRS, confirm you're getting full 5% match
Annual Actions:
- Rebalance Every January - Adjust allocations to maintain target percentages
- Increase Contributions - After every promotion, raise TSP contribution by 1-2%
- Review Performance - Check TSP statement, compare to targets
Garrison Ledger Tools:
- LES Auditor: Verify your TSP deductions and BRS match (Dashboard → LES Auditor)
- TSP Projection Calculator: See what your balance will be at retirement (Coming Soon)
- Rebalance Reminder: Set up annual email reminders (Coming Soon)
Official Resources:
- TSP.gov: www.tsp.gov (Fund performance, allocation changes)
- TSP Fund Performance: www.tsp.gov/fund-performance (Historical returns)
- BRS Calculator: militarypay.defense.gov/BlendedRetirement
- TSP Participant Line: 1-877-968-3778 (ThriftLine for help)
Verification Checklist
Before implementing your new allocation, verify:
- [ ] You've logged into TSP.gov and checked current allocation
- [ ] Your new allocation totals 100%
- [ ] You've made BOTH interfund transfer (current balance) AND contribution allocation (future)
- [ ] If under BRS, you're contributing at least 5% for full match
- [ ] You've set a calendar reminder to rebalance annually
- [ ] You understand your allocation will change as you age
Your TSP is likely your biggest retirement asset outside your pension. A 2% difference in annual returns compounds to hundreds of thousands of dollars over a career. Optimize it once, rebalance annually, and let compound interest do the heavy lifting.
🎖️ Invest smart. Retire rich.